Bear Stearns Hedge Fund Managers ChargedTwo former Bear Stearns hedge fund managers were arrested Thursday morning. They will be arraigned later in the day on charges of securities fraud as part of a yearlong federal investigation into the mortgage crisis.

Two former Bear Stearns hedge fund managers were arrested Thursday morning. They will be arraigned later Thursday on charges of securities fraud as part of a yearlong federal investigation into the mortgage crisis, officials close to the investigation told NPR.

Matthew Tannin and Ralph Cioffi are the highest-level Wall Street executives to be charged in connection with the mortgage crisis so far.

As first reported by NPR Wednesday, prosecutors allege the men told investors that two of their funds were in good shape, while privately telling colleagues they were worried about the funds' prospects.

Prosecutors are zeroing in on e-mail traffic between the two men in which they fretted about the downturn in the mortgage market only days before telling investors all was well.

The two funds had a high level of exposure to bonds backed by subprime mortgages. They eventually collapsed, and their investors lost about $1.6 billion.

The collapse of the hedge funds in June 2007 — coupled with questions about Bear Stearns management and oversight — threw the firm into a severe liquidity crisis. The Federal Reserve intervened and there was a shotgun wedding of sorts with JPMorgan Chase & Co.

Bear Stearns was eventually absorbed into JPMorgan Chase at fire-sale prices. The two funds' collapse also led investors to question how big firms were valuing their mortgage-backed securities. Firms have written off some $400 billion worldwide in mortgage-related losses.

The U.S. attorney's office in New York declined to comment on the case, as did the FBI and defense attorneys for Cioffi and Tannin. FBI Director Robert Mueller and Deputy Attorney General Mark Filip were to hold a news conference in Washington, D.C., on Thursday afternoon, and New York's U.S. attorney was expected to speak to reporters in New York City.